Legislative Panel Offers Economic Recovery Plan

Tax Cuts, Capital For Business In Lawmakers' Plan

Democratic and Republican legislators unveiled Wednesday a broad economic recovery plan intended to infuse more than $1 billion into the economy and to reduce the tax burden on state businesses.

The ambitious package, proposed by the leadership of the commerce and exportation committee, was praised by the state's biggest business group. The plan would include about $150 million in new bonding and $210 million in existing bond authorizations, a financial reservoir that legislators said would be used to stimulate between $1 billion and $2 billion in loans to business, to help military contractors diversify to other products, and to provide other aid to manufacturers.

"This is an aggressive program. There is an element of risk, but the need out there is tremendous," said Rep. Thomas S. Luby, D-Meriden, co-chairman of the committee. "We simply have no choice but to put the shoulder of state government to the wheel and help people who fear they will lose their jobs or who have in fact lost their jobs."

Gov. Lowell P. Weicker Jr. is expected to throw his political might behind the part of the plan intended to free up capital for businesses today when he testifies before the committee. The lack of available credit for businesses, especially small businesses, is crippling the state's economy, banking and business experts agree.

"No other state, to our knowledge, has put forward anything equivalent to this response to the hard economic times," said Joseph Cohen, a spokesman for the Department of Economic Development.

The package proposed Wednesday by commerce and exportation members also includes a new tax on rental cars to pay for a major television campaign in other states promoting Connecticut as a tourism destination, streamlining of environmental permitting for manufacturers, and a new definition of manufacturing that would extend millions of dollars of property tax and sales tax credits to companies that did not previously qualify as manufacturers.

The new definition of manufacturing, which would extend tax credits to high-technology companies such as computer software makers and to research and development efforts, is needed to stem

the flight of manufacturing companies to other states because of the tax incentives offered there, said Anthony V. Avallone, D-New Haven, the other co-chairman of the commerce and exportation committee.

Avallone said shifting the tax burden from manufacturing to other revenues could lead to a significant fight in the legislature. "Any change in the revenue stream, there are going to be competing interests for those funds, but I think it's fair to say that the best human service program we can think of is an opportunity for people to have a job," he said.

The legislature's Office of Fiscal Analysis is still trying to come up with an estimate of the cost of the new definition, but the full package would include "on the level of hundreds of millions of dollars in tax changes and lightening the load on Connecticut businesses," Luby said.

Luby, Avallone, and the other Democratic and Republican leaders of the committee -- Sen. Stephen R. Somma, R-Waterbury; Rep. Glenn N. Arthur, R-Ledyard; and Rep. Peter C. Smith, D-Milford -- said the full program could protect or create 20,000 jobs in coming years.

"I think the committee should be commended for really taking an aggressive step" to try to improve the business climate in the state, said Joseph F. Brennan, vice president for legislative affairs for the Connecticut Business and Industry Association. "It's certainly an important initative that needs to go forward."

The question, Brennan said, is whether the General Assembly will enact the package that was proposed Wednesday.

The association is particularly interested in getting the legislature to pass a new definition of manufacturing, because the present definition does not cover the modern manufacturing processes that many companies use, Brennan said.

No one disagrees that businesses need better access to loans, that Connecticut needs to do more to promote tourism, and that the state needs to keep manufacturers from fleeing to other states. But the solutions proposed by the committee are sure to get some debate.

Banking experts say the recession has handicapped the ability of many banks to make loans. Small businesses are having trouble obtaining loans because of tighter government regulation, because many banks are carrying a heavy load of unmarketable real estate that retards their ability to make loans and for other reasons, said Banking Commissioner Ralph M. Shulansky.

The goal is to get banks to make more than $1 billion in loans to private businesses.

By using the state's bonding ability to guarantee a portion of loans made by banks, banks would be equipped to make loans they could not or would not make now.

Avallone said legislators have discovered a cache of $210 million in bonding that was authorized in 1961, but never tapped. Using that bonding authority, Avallone said the state could establish a pool of $400 million in loan guarantees -- contracts saying that if a loan failed, the state would make good on a portion of the loss.

If the state was to guarantee 20 percent of the loans made by banks, the $400 million could be multiplied five times, allowing banks to make as much as $2 billion in loans to businesses.

The loans would be intended for new businesses and existing businesses that are profitable, but which now are having trouble

obtaining capital, the legislators said.

"We're going to target that money in cooperation with the banking institutions of this state and the state of Connecticut to create a public-private partnership that is going to break the credit crunch," Avallone said